5 ways to identify personal loan scams

Find out ways to identify personal loan scams to prevent fraudulent businesses from taking your hard-earned money. (iStock)

In 2020, there were 99,667 reports of identity theft for business and personal loans, according to the Federal Trade Commission. This represents an increase of 127% over the previous year. If you don’t see the warning sign of a personal loan scam and fall for a scammer, your identity may be stolen. Moreover, the scammer may take some of your hard earned money. Besides taking your money, the scammer could also hit you with identity theft, potentially leaving you with bad credit.

One way to avoid falling victim to a personal loan scam is to compare offers from several legitimate lenders through a lender’s website or other safe method to find the best personal finance loan for your needs.

To avoid getting scammed by scam lenders, learn to identify some common warning signs of a personal loan scam. If you are looking for a reputable lender, visit an online marketplace like Credible to explore personal loan options.


How to Avoid Personal Loan Scams?

To avoid personal loan scams, you need to be on the lookout for these five red flags:

  1. The lender has guaranteed the approval
  2. The initial costs
  3. The lender offers you a loan by phone
  4. The lender is not registered in your state
  5. The lender wants you to wire money or use a prepaid credit card

1. The approval of the loan secured by the lender

Before you approve a loan, a lender usually looks at key factors such as your debt ratio, credit rating, and income. In doing so, he can gauge the likelihood of you repaying the loan or assess higher loan rates for those with bad credit – those with better credit qualify for a better interest rate.

If a loan company tells you that they guarantee loan approval without going through this process, it is a sign that the loan company may be fraudulent. Legitimate personal loan financial institutions, even those that offer bad debt loans, usually have a review process with credit checks to confirm your income and credit history.

2. Initial costs

Although some financial institutions may charge you an application or origination fee for taking out the loan, these fees are usually taken from the loan amount. Plus, lenders won’t charge a setup fee to check your rates. If a lender asks for an upfront fee, you may be dealing with a loan scam.

If you are considering a personal loan or want to take out a second personal loan, you can visit Credible to compare loan rates and lenders.

3. The lender offers you a loan over the phone

It is illegal for a lender to offer you a loan over the phone. If a lender is doing this, it is definitely a sign that you should run.


4. The lender is not registered in your state

Lenders must be registered in each state in which they operate. To make sure you avoid a personal loan scam, check with the state attorney general’s office to see if it is registered.

5. The lender wants you to wire money or use a prepaid credit card

Legitimate personal lenders don’t ask borrowers to wire money or use prepaid credit cards. If a lender insists you do one, don’t. The lender is most likely trying to steal your money.

How do you know if a personal loan company is legitimate?

In addition to a lender registered in your state, you should focus on these three factors to help you determine if a loan company is legitimate:

  1. Physical address: A lender who does not have a physical address or who uses a PO box for an address is the one you should treat with suspicion. Legitimate businesses will post their physical address somewhere on their websites.
  2. Secure website: If the lender’s website is not secure, it may indicate that the business is not real. You can see if a website is secure by looking for the padlock next to where you type the website in your browser.
  3. Better Business Bureau: You can use the Better Business Bureau to review a lender. If the lender is not listed or has little notice, it may be a bogus business.

To learn more, visit Credible to speak with an experienced loan officer and get your personal loan questions answered.


What should I do if I am the victim of a scam?

If you’ve accidentally applied for a personal loan from a fraudulent lender, here are four steps you can take:

  1. Call your local law enforcement office to file a report
  2. File a complaint with the Better Business Bureau
  3. File a report with the FTC or the Consumer Financial Protection Bureau
  4. Try to get back the money you lost by contacting your bank or credit card company

The bottom line

To avoid personal loan scams, you need to watch out for the common red flags discussed in this article. Ignore lenders who guarantee approval, offer loans over the phone, or ask you to wire them money. Once you’ve found a reputable lender, you can focus on more important things, like using your personal loan.

If you want to speed up the process of finding a reputable lender, visit Credible for the best personal loan rates.

Have a financial question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert column.

About William Moorhead

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